What is Income Tax?

Every individual earns an income for his living. From that earning, Government takes a share so that it can maintain the general utility facilities. This share is called income tax. Some philosophers also say Income Tax to be a compulsory extortion of money. Income Tax has to be paid by everyone, be it individual/ firm/ company/ trust etc. For monitoring taxes, Tax Act is formed by the IRS.

What is the Federal Income Tax System?

Federal Income Tax System is the system of government under which it levies taxes and collects tax from individuals under various names like individual income taxes, payroll taxes, corporate income taxes, social security tax rate, excise taxes etc. When an individual earns income, Federal Income tax is levied on his Adjusted Gross Income (AGI) after providing for deductions and exemptions. Taxes under Federal Income Tax System are progressive in nature i.e. higher the income of the individual higher will be the taxes paid by him.

What is IRS? How do you contact the IRS?

Backbone of any country is its economy and so is its Revenue Service. Revenue Service of United States Federal Government is called Internal Revenue Service. It works under the direction of the Commissioner of Internal Revenue. It is formed under Department of Treasury. IRS hosts a website on which it can be contacted also contact details and addresses of its various offices are hosted on the website. IRS is mainly used by taxpayers for Income Tax Payment and filing.

Why do we deposit Income Tax? What is filing taxes and why?

Government provides us with various general utility services such as public transport, Healthcare, Education, etc. but where do all the money come from? It comes from the taxes we pay under various arrangements of government. So we deposit income Tax for our ultimate benefit.

What is Income Tax Return? What is it return? What is the meaning of Income Tax Return?

Every person has to submit the government details of his income earned and tax calculated thereon to facilitate government for assessment of the person. Such details are to be given in a specific format issued by the government; this format is called Income Tax Return.

What is State Tax Return?

Tax is paid at two levels one is state and one is federal. Accordingly, we have to give the details of our income to centre as well as states in the form of return. Tax return submitted to state is called state tax return. There is an important provision regarding state taxes that one who pays state tax can claim and get deduction of federal tax after submitting the tax return duly filed in.

What is Income Tax Bracket? How many Tax brackets are there?

Every individual has to pay tax according to a certain Income tax Slab, such slab is called tax bracket. Altogether there exist 8 Tax Brackets in the Federal Tax System, 2015 tax brackets are discussed in the following schedule.

What is the Income Tax Rate in California?

Tax rates applicable in the United States can be summarized in the table given below:

Table 1.1: 2015 Tax Table

Taxable Corporate Income

Corporate Tax Rate

$0- $49,999

15%

$50,000- $74,999

25%

$75,000- $99,999

34%

$1,00,000- $3,34,999

39%

$3,35,000- $99,99,999

34%

$100,00,000- $1,49,99,999

35%

$1,50,00,000- $1,83,33,332

38%

$1,83,33,333 and over

39%

From the above table we can conclude that highest tax rate in the US is 39% and also progressive taxation applies. For example a person with a low income as $10000 has to pay only 15% taxes out of his income whereas an individual with $1,50,00,000 has to pay 38% tax out of his income.

What is the minimum amount of income to file taxes? How much do you have to make before you have to file taxes?

Government has issued a slab rate in respect of minimum income required to file taxes which it updates every year, current slab rate is summarized in the following table:

Table 1.2 Filing Requirements for Individuals

Filing Status

Age of Taxpayer

Minimum Income to File a Return

Single

Under 65

65 or older

$10,350

$11,900

Married filing return jointly

Under 65 (both spouses)

65 or older (one spouse or both spouses)

$20,700

$21,950

What is the procedure for filing tax? How can I do my taxes? What is filing a Tax Return?

As per the filing requirements for individuals given above, if one is required to pay tax he has to do it step by step. Individuals can file taxes physically or electronically. If the individual chooses physical filing he has the option to download the required form, print it then sign it and then send it to the given address in the form. Electronic filing is discussed below and details of various forms are also given below. An individual can also use income tax calculator for the purpose of calculating his tax liability. Example of one such tax calculator can be seen here.

What is E-Filing?

Individuals can opt for physical filing of taxes or electronic filing. This option is given by the revenue service of the country. Electronic filing of taxes is called E-Filing. It is also called as online tax filing. For E-Filing of his taxes individual can make use of Third Party Tax Preparation Software (tax software) or can seek help from an Authorized IRS E-File Provider who may charge applicable fees. One benefit of E-Filing of taxes is quicker refund of taxes because of the time saved in sending the return physically and waiting for a response.

What are Income Tax forms? What is the 1040 Tax form? How do you get your 1040? Where do you get a tax form?

There are various forms in relation to filing of taxes; important ones are Form 1040EZ, 1040A and Form 1040. Form 1040EZ is the simplest form to use and is customized for those individuals who are having very few assets, having taxable income of less than $100,000, having no dependents, are not claiming any deductions and other restrictions along with these. If an individual falls out of Form 1040EZ he will have to use Form 1040A, who falls out of Form 1040A will use Form 1040. For more details on Tax forms like 2016 tax tables 1040, 1040 form 2015, 2014 form 1040, IRS form 1040 instructions, IRS form W-4, IRS forms W-9, IRS 1040A, etc. individual can refer here.

What is W9 Form 2016?

W9 Form is the unofficial name given to a form made for ‘Request for Taxpayer Identification Number and Certification’. It is used neither by an individual paying taxes nor by the IRS but by a third person who has a requirement to file an Information Return with Internal Revenue Service. This form along with other details needs name, business name, federal tax classification (individual/ trust/ partnership, etc.), address, Taxpayer Identification Number etc. of the taxpayer. This form is not required to be sent to the revenue service but has to be kept by the individual who files W9 for verification purposes.

What is Income Tax Preparation?

Income Tax Preparation refers to the process of preparing and filing tax returns and paying taxes. Individual can prepare their tax returns physically or electronically, he can do it on his own or can seek help from software or authorized preparer. This aspect of tax preparation has been discussed above in E-Filing section. Ten step guide can be seen here.

Who is a Tax Preparer?

Any individual who assists the taxpayer in filing taxes and claims for refund and charges a compensation for such assistance after being registered with the revenue services after passing various related exams is called a Registered Tax Preparer. Registered Tax Preparer became effective from 1st January 2011 in the United States. Tax Return Preparers have to obtain a Practitioner Tax Identification Number (PTIN) after passing a competency test.

What do I need to do to become a tax preparer?

To be a tax preparer, an individual has to meet several requirements like educational requirements, training requirements etc. After fulfilling these conditions he can apply for certification and get a PTIN and can get started with working as a tax preparer.

How much does it cost to get your taxes done at Liberty Tax?

Liberty Tax is a tax preparation service which provides support services for preparation and filing of taxes, refund claims etc. They offer a wide range of prices for getting your taxes done along with occasional special deals as well. Cost may differ depending upon various factors like the type of work to be done, income of the taxpayer etc. One can visit the website of Liberty Tax to get more details about getting your taxes done from there. Just like liberty tax there also exists one TurboTax which provides similar services like TurboTax 2015, TurboTax calculator, turbo tax login, TurboTax phone number, tax return transcript, 2015 Schedule A, etc.

What is the Vita Tax Program?

VITA stands for Volunteer Income Tax Assistance is a scheme launched by IRS for Free tax filing for people having an income of $54000 or less, people with disabilities, and people with limited English speaking who require help in preparing their tax returns. Certified volunteers of Internal Revenue Service provides basic income tax return preparation along with filing returns electronically free of cost to person who is qualified for such assistance as per rules framed by Internal Revenue Service. There are several VITA sites which are generally located at libraries, schools and any other easily available location across the country.

What is the Standard Deduction for 2015? What is the Tax Deduction for 2015?

There are two types of tax deductions, standard and itemized. An individual can claim only one deduction out of the two. For instance, if an individual claims itemized deduction, he cannot claim standard deduction and if he claims standard then he cannot claim itemized. After calculating the Adjusted Gross Income, we deduct the amount of standard deduction which reduces our taxable income. It is completely on individual’s discretion to use any of the two methods whichever results in a lower tax liability.

Following schedule gives the amount of standard deduction for the year 2015:

Table 1.3: Standard Deduction

Filing Status

Standard Deduction

Single

$6,300

Married filing jointly

$12,600

Married filing separately

$6,300

Head of household

$9,250

Qualifying Widow(er)

$12,600

What is an Income Tax Refund?

A taxpayer may be entitled to claim refund of income taxes paid by him by reason of claiming a deduction later on or otherwise. Such a refund is called Income Tax Refund. Income Tax Refund enquiry can be made within 24 hours of E-Filing (in case of electronic filing) or within 4 weeks after sending the paper return (in case of physical filing). Most of the refunds are issued within 21 days of the receipt of the return, however in a few cases it may take longer period of time. To check the status of his tax refund one needs to have his social security number or ITIN, filing status and exact refund amount. Website if IRS can be visited for IRS refund phone number and also for answer of questions like ‘where’s my amended refund’.

What is a Split Refund?

Any taxpayer can request the Internal Revenue Service to split the tax refund in two or three bank accounts operated by the taxpayer but such request has to be made in a proper format issued by the Internal Revenue Service. To claim a split refund taxpayer has to fill up and attach Form 8888 giving the details of bank accounts and the proportion of refund taxpayer wants in each of them. Apart from the conventional methods of cheque or direct deposit refund can be claimed in the form of savings bonds (up to $5000) or anticipation loans.

Benefits achieved by a taxpayer from split refund are as follows:

Avoid the rush of depositing cheques into different bank accounts.

Apportion the money into several bank accounts as there is a famous saying that ‘One should not keep all his eggs in one basket’.